The remit of the EU on corporation tax matters
In light of the breadth of proposals issued by the EU, it is worth briefly considering the remit of the EU
on direct tax matters.
Requirement for unanimity
First, all EU legislative proposals on direct tax matters (including draft directives) must be agreed
unanimously. This requirement for unanimity has historically made it difficult for EU tax proposals to
progress. It was not possible to achieve unanimity on the 2011 draft directive on the CCCTB. Nor
was it possible to achieve unanimity on the introduction of an EU-wide financial transaction tax (“FTT”)
following the global financial crisis. Within 18 months of the Commission first adopting the FTT
proposal it was clear that no unanimous position could be agreed. At that point, eleven Member
States agreed to proceed with an FTT under the enhanced cooperation procedure. The number of
participating Member States has since reduced to ten and a final directive has yet to be agreed.
Principle of subsidiarity
EU directives on tax matters may only be proposed to the extent they directly affect the establishment
or functioning of the internal market. The EU’s ability to legislate is also restricted by the principle of
subsidiarity which provides that the EU shall only legislate insofar as the relevant objectives cannot be
sufficiently achieved by Member States but can be better achieved at EU level.
In 2009 the Lisbon Treaty introduced a subsidiarity control mechanism (informally described as the
‘yellow card procedure’) enabling Member States to formally object if they consider that draft
legislation does not comply with the principle of subsidiarity. Under the yellow card procedure, if a
Member State considers that draft EU legislation is in breach of the principle of subsidiarity (and would
more appropriately be dealt with at national level), it may issue a reasoned opinion to the EU setting
out the reasons why. Such reasoned opinions must be issued within eight weeks. If reasoned
opinions are issued by enough Member States (Member States that represent one third of the voting
rights), the Commission is required to review the proposal and if necessary amend or withdraw it.
When the 2011 draft directive on CCCTB was issued nine Member States issued reasoned opinions
outlining why they considered the proposal breached the principle of subsidiarity. This represented 14
votes, just 4 short of the 18 votes required to instigate a review. It is always interesting to see how
many (if any) reasoned opinions are issued by Member States in response to new draft directives on
corporate tax matters. It might be taken as an early indicator of how likely Member States are to
unanimously agree the final position.
Other mechanisms available
The Commission has been clear that its preference is to move away from the requirement for
unanimity on tax matters and move towards qualified majority voting. This preference was expressed
in 2001 when the EU comprised 15 Member States (compared to the current 28) and at that time the
Commission acknowledged that enlargement would make achieving unanimity more difficult. It was
suggested by the Commission that where legislation is not absolutely necessary in direct tax, other
methods should be found to achieve progress in removing tax obstacles and distortions to the internal
market, including the use of infringement proceedings, State aid investigations and ‘soft law’ solutions.
The various State aid investigations instigated by the Commission over the past eighteen months in
respect of tax matters and the various infringement proceedings taken against Member States in
respect of national tax laws clearly indicate that the Commission continues to see the advantage of
those mechanisms.
Possible outcomes
Once a draft directive on corporate tax has been issued any number of outcomes, including the
following, are possible:

the directive could be agreed unanimously in its original form (or something very close to its
original form);

the fate of the directive could be similar to that of previous EU legislative proposals on direct
tax – some Member States (or even just one Member State) might consider that the proposal
is entirely unacceptable and vote against it and all iterations of it. In those circumstances
some Member States may wish to progress the directive (in some form) under the enhanced
cooperation procedure;

if Member States struggle to agree the directive in its original form, the more controversial
provisions may be dropped and the Commission may seek to agree a ‘slimmed down’ version
of the directive including only the consensus items (whatever they might be).
It is clear that the Commission considers that a co-ordinated approach to cross-border tax is essential.
However, historically direct tax has been viewed by Member States as central to national sovereignty.
Whether Member States will be more amenable to agreeing any proposals in a post-BEPS
environment remains an open question.